What You Should Know About Insurance Claims

What’s an insurance claim?

“Filing a claim” is the process you go through to get a payout from your insurance company when something bad happens. Claims involve paperwork, photos, damage appraisal, and sometimes (depending on the nature of the claim) legal action. While all that might sound like a bit of a headache, the good news is: Claims end with you getting the funds you need to cover home repairs, auto body work, or medical bills — without footing the whole bill yourself.

How does the insurance claims process work?

In a perfect world, you’d call your insurer and say “Hey, a windstorm tore the roof off my house. I need $80,000 to repair it,” and they’d cut you a check and send it over the next day. Unfortunately — you saw this coming — we don’t live in a perfect world, and the claims process is a little more complicated than that.

The first thing to know is that the claims process varies by insurance type (home, life, health, etc). Here, we’ll focus on claims for homeowners insurance and auto insurance, which are fairly similar when you look at basic procedures.

Claims for homeowners and car insurance require the same four basic steps before your insurance company will pay out:

• Step 1: Make the right phone calls.
  If you’ve been in a collision, get in touch with the police immediately. Same goes for crime-related home insurance claims (burglary, vandalism, etc.). And no matter what kind of claim you’re filing, make sure to get in touch with your insurer as soon as possible. The faster you get the ball rolling, the sooner you’ll receive your payout.
• Step 2: Fill out the required forms.
  After you’ve contacted your insurer, they’ll send over the paperwork required to process your claim. Most major insurance companies offer online claims filing, which makes the process much smoother and quicker — you’ll be able to send and receive forms electronically, and upload incident photos directly to your claim, often from your mobile phone.
• Step 3: Get damages assessed.
  To make sure they’re paying you the right amount, most insurance companies will ask you to get damages priced out by an approved party. For car insurance, that often means taking your vehicle to an accepted auto body shop. As for homeowners, the company will generally send an insurance adjuster to come assess your house after an incident.
• Step 4: Cover your deductible.
  Almost all claims, aside from liability cases, require a deductible payment. You’ll have to cover your deductible in full before the insurance company will fork over its share of the total cost.

How long does it take to settle a claim?

The amount of time it takes to settle a claim depends on many different factors: the severity and complexity of the damage, how quickly you file your paperwork, how soon an adjuster is available, whether the company is handling multiple claims at once (like in the event of a natural disaster) — and so on. The process can be especially lengthy for liability cases, which might end up in court if a lawsuit is filed.

With all these factors in play, it’s hard to pin down an “average” claims settlement time. The best thing you can do to make sure your claim is handled in a timely manner is to file as soon as possible and stay in constant communication with your provider.

Pro tip: Check out companies’ claims records before you buy insurance. Survey groups J.D. Power and Consumer Reports poll thousands of customers every year about how satisfied they are with their insurers’ claims process. Check ratings before you buy a policy to make sure your provider has a strong reputation for paying claims on time and in full.

When should I make a claim?

The right time to make a claim is when total damages are significantly higher than your deductible, and you couldn’t comfortably pay them out of pocket. To give a more concrete example: If your deductible is $500, and a collision causes $750 worth of damage to your car, it’s best to cover the extra $250 yourself (on top of the $500 deductible), and avoid making a claim if possible.

Why is it bad to file multiple claims?

Any time you file an auto or homeowners insurance claim, that information gets registered on your personal insurance report card. Companies will actually pull that file and look at it when you’re getting quotes or applying for new policies. The more claims you’ve filed, and the bigger they were, the more insurers will charge you for your coverage.

Insurance companies do this because they assume people who’ve filed numerous claims in the past are more likely to file again in the future. Higher premiums are their way of making up for those potential payouts. If someone has a particularly egregious claim record, they might even be denied coverage (though that’s relatively rare).

Of course, insurance exists so you don’t have to pay for home and auto losses on your own dollar. We aren’t here to be alarmist or scare you away from making claims altogether — only to point out that insurance isn’t a bottomless cup. Be mindful about when and why you tap into your insurance to make sure you don’t get stuck with higher rates or have a hard time finding coverage later on.

Will my policy be canceled if I make too many claims?

If you file multiple large insurance claims in a relatively short period, like within two or three years of one another, your insurer could decide not to reup your policy when its renewal date comes around. Or in non-insurance-speak: the company could drop you.

So, how many claims is too many? It would be nice if there were a concrete answer to that, but the fact is, every company looks at your claims history differently. For some insurers, it may be two auto collisions within the past three years. For others, one costly collision in recent history might be enough to deter them from renewing your coverage. Stick to the rule of thumb that as few claims as possible is always best.

It’s important to note that nonrenewal is not the same thing as cancellation. Policies are generally only cancelled — i.e. annulled in the middle of the contract — for two reasons: If the policyholder fails to pay their premiums, or if the company finds out that they gave false information on their application (like omitting a car accident or a preexisting condition). These situations can be grounds for cancellation and will make it harder to find insurance in the future.

How long does a claim stay on my record?

Past insurance claims typically count against you for about three years. After that period, you should go back to having a “clean” record and more favorable rates. We’ll also mention that, though it might be tempting, it’s not possible to slip the three-year window by switching insurance companies. Claims are tracked on your official insurance record for seven years, and any provider can access that information when you apply for coverage.

What’s next?

• Still wading through the car insurance basics? Start with our complete auto insurance buyer’s guide — it should answer all of your questions and then some.
• You can also learn more about top car insurance providers in the market and start comparing prices with our review of the best car insurance companies.